Keith TaylorBest Practices for Purchasing and Materials

Management Session # 3673

Over 30 years of purchasing, materials management and operations

22 years with a large manufacturer of truck mounted sewer cleaning equipment

20 plus years experience implementing business systems and helping companies improve their efficiencies and bottom line through Business Process Improvements

Certified SAP Consultant on all versions since 2004. SAP Gold level partner since 2004

Background: Keith Taylor

What is Purchasing and materials management?

Make technology work for you

Establish, monitor and follow Department Goals

Data Integrity

Requisitions and Purchase Quotes

Purchase Orders and Purchase Order Acknowledgements

Expediting Purchase Orders

Key Discussion Points / Agenda

CRM and now VRM

Focus on TCO (Total cost of ownership) not just cost

Vendor Performance Reviews

Materials Management and using MRP

Managing Inventories – what reports to use?

Vendor Managed Inventory (VMI)

Key Discussion Points / Agenda

“If you think you are working hard to obtain information or something is hard to do in or out of B1 then there is probably a better way or there should be a better way.” Keith Taylor

Misconception is that just purchasing an ERP solution will solve all of your purchasing and materials management problems.

Your ERP solution is a “tool” that enables materials management to be successful.

Make Technology work for You

When working “hard” it is generally because you are working defensively instead of being proactive.

Examples:

Waiting for someone to tell you to order something instead of using data from the ERP system to do so.

Waiting for someone to tell you to expedite an item

“Bad” data in the ERP system

Make Technology work for You

What are the fundamental duties of Purchasing and Materials Management?

To supply quality material, products, and services at the right time and the right price.

Purchasing & Materials Management

Cost savings by buyer / product line or other metric

Vendor Reductions – the more vendors you maintain and use the higher your costs

Vendor on time delivery improvements

Vendor Quality improvements

Inventory reductions based on inventory turns, inventory aging, total value

Establish Department Goals

Many companies set department goals but surprisingly many of these same companies do not have a way to monitor and determine if the goals have been achieved.

We are going to explore some ways to measure and monitor that help you pro-actively manage the purchasing and materials departments

Measure / Monitor Department Goals

Clean up and use your data in SAP

All users of the ERP system share the information

Vendor information including contacts, phone numbers, email addresses, etc.

Accurate items and bill of material information

Accurate inventory data

Without accurate data you will work harder

Data Integrity – Best Practices

Now that SAP has them when do you use them?

Sometimes used in conjunction with dollar amount restrictions

When you need a record that someone wanted you to purchase materials or other items that you cannot justify in SAP by running MRP or other reports

If using MRP - recommend that you only create purchase requisitions for the special materials needed or for supplies and similar products.

Purchase Requisitions – Best Practices

Now that SAP has them when do you use them?

Sourcing New items

Sourcing new vendors

Use special prices for Business partners to record costs for your vendors and items

Fairly easy to use transaction notification in SAP to update special prices when you record the costs from a purchase quotation

Purchase Quotations – Best Practices

While negotiating with your vendors or proposed vendor convey your policies and procedures to your vendors.

Review your forms with the vendor and make sure they clearly know what each field means.

Use for all purchases

P-Cards

Purchase Orders – Best Practices

Contract to the vendor stating all terms and conditions.

Print buyer, phone number, extension, email, fax, etc. on all documents using the Document owner or buyer field on the PO screen

Show part numbers on the line items and include your item number and the vendor’s item number. Include due dates and all pertinent information.

Purchase Orders – Best Practices

Train your vendors to acknowledge receipt of your purchase order.

Verifies that the vendor received the PO AND that they agree to all of the terms and conditions of the order.

Notation on the purchase order “Please acknowledge receipt of this purchase order including all pricing, delivery, terms and conditions to the buyer below”.

Purchase Orders – Best Practices

Update PO with acknowledged date

Verbal purchase orders lead to errors and disputes.

Send or confirm the PO in writing using email. It is free and now easier then ever to do using the auto send email features of SAP B1 version 9.1

Purchase Order Form

Purchase Orders – Best Practices

Never place a purchase order without a cost. There is no reason to do this. A PO without a cost or terms basically tells the vendor charge me what you want, delivery it whenever and don’t worry about meeting any specifications.

Purchase Orders – Best Practices

User defined field on Purchase Order “Acknowledged” (date type)

When vendor confirms go to the purchase order and enter the date – change any other requirements on the purchase order that the vendor modified such as cost, dates.

Create an alert for each buyer based on the doc owner field showing all purchase orders that have not been acknowledged.

Buyer to follow up daily – goal is the alert is not received meaning all PO’s have been confirmed and acknowledged

Purchase Orders – Best Practices

Most companies do not expedite pro-actively. Why wait to have someone like the BOSS tell you it is not here. You know this already!!

Create an alert to run automatically and send to each respective buyer showing PO’s that are late based on the PO Line Due Date

Can also use similar logic to send a list of purchase orders that are due next week to make sure that everything is still on target.

Purchase Expediting – Best Practices

PO’s placed and sent daily

PO receipts performed in the warehouse using warehouse personnel

PO Receipts performed daily – you do not know what is late if these are processed the next day, once a week, etc.

AP Invoices – costs and information should match what your vendor acknowledged. If not call the vendor return the invoice, etc.

Transactions – Best Practices

CRM is commonly used to keep track of important events on the sales side of the house.

Use VRM to keep track of important events in purchasing.

Create Activities and use for areas such as Expediting, quality issues, Performance, etc.

If you use activities for purchasing it is fairly easy to conduct vendor performance reviews

VRM – Best Practices

How do you determine what to purchase now? Surprisingly, many buyers still run an inventory report to determine what they need to purchase.

Min/Max, Safety Stock, Forecasts, sales orders –which one(s) should I use to tell me what to purchase?

Depends on the type of company you are, for example:

M2O (make to order or job) - MRP using many of the item master fields such as min, SS, Sales orders, Production orders, forecasts

M2S (make to stock) – forecast, min/max

Materials Management – Best Practices

Often Buyers say my vendors are stocking material for us. VMI is a perfect candidate for these vendors and others.

Material is in your warehouse. The vendor owns it not you. No cash flow or taxes issues.

Have seen examples of the vendor supplying their own personnel to distribute the material

Eliminates excessive freight costs for rush service.

No cost until material is used

Vendor Managed Inventory – Best Practices

If standard report does not exist for you develop the reports and / or queries to tell you what you need to know when you need to know it.

Inventory Audit Report

Inventory Audit Query

Inventory Aging Report

Inventory Tools – Best Practices

ABC Analysis

Query / Alert of Items below minimum or safety stock

Excess inventory on hand – often returnable to vendors if it is caught quickly. Run queries, reports periodically at least every 6 months to catch these items.

Inventory Tools – Best Practices

New vendors

New Items

PO receipts for the previous day

Open Purchase Quotations

Other Queries / alerts – Best Practices

Cost Reductions – fairly easy to monitor by creating a price list at year end with your last purchase cost and then you can compare purchases for a particular year against the saved price list.

Sourcing – Is your purchasing department placing purchase orders or truly sourcing products?

Measure / Monitor Department Goals

Inventory Reductions – using reports such as:

Item Usage / Sales by Month

Inventory Turnover Analysis

Measure / Monitor Department Goals

Supply your vendor with a report of all purchases for the last year or measurable period of time. Easy to supply the data with a query or Purchase Order Analysis report

Review late shipments. Easy query of receipts showing the date the material was supposed to be here compared to the actual PO receipt date.

Review quality issues using the activities you created.

Review forecast if any for next period.

Vendor Performance Reviews

Best Practices for Purchasing and

Materials Management

STAY INFORMED

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Presenter: Keith Taylor @KeithTaylorLBSi

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My contact information: Keith Taylor, keith@lbsi.com

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